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Exam 16: Cost-Volume-Profit Analysis

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Question 1

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Emerald Printing Company projected the following information for next year: $\begin{array} { l } \text {Selling price per unit }&\$60.00\\ \text {Contribution margin per unit }&\$45.00\\ \text {Total fixed costs }&\$150,000\\ \text {Tax rate }&30\%\\\end{array}$ What is the break-even point in dollars?

A) $415,000
B) $110,000
C) $200,000
D) $320,000

E) C) and D)
F) A) and B)

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Question 2

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CVP analysis is a short-run decision-making tool since some costs are fixed.

A) True
B) False

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Question 3

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In 2018, Samantha's Bath and Body Shop had variable costs of $27,000, fixed costs of $18,000, and a net loss of $4,500. Samantha's 2018 break-even sales volume was

Summersville Production Company had the following projected information for the current year: $\begin{array} { l l r } \text { Selling price per unit } & \$ 150 \\\text { Variable cost per unit } & \$ 90 \\\text { Total fixed costs } & \$ 300,000\end{array}$ What level of sales dollars is needed to obtain a target before-tax profit of $75,000?

The cost-volume-profit graph portrays the relationship between profits and sales volume.

Uncertainty regarding costs, prices, and sales mix affect the break-even point.

When a company sells more units than the break-even point,

Units to earn target profit equal total fixed costs plus target profit divided by the contribution margin ratio.

Nonesuch Company sells only one product at a regular price of $7.50 per unit. Variable expenses are 60 percent of sales and fixed expenses are $30,000. Management has decided to decrease the selling price to $6.00 in hopes of increasing its volume of sales. What sales dollar level is needed to obtain a before-tax profit of $60,000 when the selling price is $6.00 per unit?

Assuming all other things are the same, if there was a decrease in the break-even point, selling price per unit must have:

Bugatti, Inc. decided to institute an advertising campaign that would cost $75,000. Variable costs will remain at $15 per unit. Bugatti is currently selling 100,000 units of its product at $25 per unit. The marketing department is estimating that there will be a 10 percent increase in sales volume. With all else remaining the same, what will be the result of this decision?

Under ABC, cost drivers are separated into unit-based and non-unit-based drivers.

The income statement for Sapphire Manufacturing Company for 2018 is as follows: $\begin{array}{lr}\text { Sales (20,000 units) } & \$ 150,000 \\\text { Variable expenses } & 50,000\\\text { Contribution margin } & \$ 100,000 \\\text { Fixed expenses } & 30,000\\\text { Operating income } & \$ 70,000\end{array}$ If sales increase by 2,000 units, what will happen to profit?

Randolph Plumbing Company has the following information for the current year: $\begin{array}{lr}\text { Selling price per unit } & \$ 10 \\\text { Variable costs per unit } & \$ 7 \\\text { Fixed costs } & \$ 1,500\end{array}$ Required: Prepare a profit-volume graph identifying the following items: a.Profit line b.Intersection of profit line and vertical axis c.Break-even point d.Profit area e.Loss area

The Cumberland Company provides the following information: $\begin{array} { l } \text {Sales (250,000 units) }&\$625,000\\ \text {Manufacturing costs: }&\\ \text {Variable }&212,500\\ \text { Fixed}&37,500\\ \text {Selling and administrative costs: }&\\ \text {Variable }&100,000\\ \text { Fixed}&25,000\\\end{array}$ What is the contribution margin per unit for Cumberland?

The use of fixed costs to increase the percentage changes in profits as sales activities change is called the __________ leverage.

Tiramisu Company projected the following information for next year: $\begin{array} { l } \text {Selling price per unit }&\$60.00\\ \text {Contribution margin per unit }&\$30.00\\ \text {Total fixed costs }&\$100,000\\ \text {Tax rate }&20\%\\\end{array}$ How many units must be sold to obtain an after-tax profit of $40,000?

A very high degree of operating leverage indicates a firm

The following diagram is a cost-volume-profit graph for a manufacturing company: Select the answer that best describes the labeled item on the diagram.

Income taxes are generally calculated as a percentage of income.